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Logistics in transition: global growth driven by e-commerce, intra-regional supply chains and the trend towards niche offerings

Munich/Frankfurt, August 20, 2014

  • Report by Roland Berger and Barclays: Logistics market expected to grow up to 3 percent annually to 2020
  • Fast-growing online business poses logistical challenges and presents new business opportunities
  • Targeted acquisitions afford access to new markets, regions and niche sectors
  • Targeted market strategies and tailored financing models in demand

Munich/Frankfurt, August 2014: The logistics industry is playing an increasingly important role in international commerce. Global revenues had reached €981 billion by 2011 and the market for logistics services is expected to grow up to three percent per year worldwide in the period up to 2020. According to Global Logistics Markets – Trend Analysis, a new market report by Roland Berger Strategy Consultants and Barclays, logistics companies must adapt to new market trends that pose very challenging demands. The logistics industry is presented with new opportunities, such as the growing importance of intra-regional markets, the expansion of E-Commerce and in providing specialized services to a range of industry sectors.

"The volatile market environment, the ever-stronger online market, the shift in markets towards Asia, and the growing demand for special transport services necessitate new corporate strategies and considerable investments on the part of logistics providers," explains Dirk Friebel, logistics expert at Roland Berger.

Importance of intra-regional markets on the rise – especially in Asia

Intra-regional markets’ relevance to logistics is on the upswing. In 2011, the market for logistics services in this sector was well up from the previous year – especially in Asia (+19%) and Europe (+22%). Southeast Asia, in particular, came on strong. Local markets offer providers with focus on selected verticals good growth opportunities and high margins, especially in automotive, consumer goods and industrial products. "The saturation of automotive markets in Europe and North America has had an adverse impact on logistics service providers in these regions," says Roland Berger Partner Matthias Rückriegel. "Logistics companies should focus on markets with promising outlook to achieve sustainable success."

Currently, China, Japan and India figure most prominently in the Asian contract logistics sector. However, alongside China, other emerging countries such as Indonesia, Thailand, Malaysia, the Philippines and Vietnam will grow markedly up to 2017– by more than 10 percent per year. Although Southeast Asia has emerged as a new logistics cluster, the local infrastructure has yet to attain western standards for quality. "Apart from Singapore and Hong Kong, the region urgently needs investment to improve its transport infrastructure," says Alexander Doll, Co-CEO of Barclays Germany. "China is playing an important role here with its experience: The country is helping its neighbors develop their infrastructure projects."

E-commerce: Opportunities and challenges

Another trend shaping the logistics industry is the rapid growth of online business. In 2011, e-commerce's share of total trade in Germany, the UK and France was up 14 percent from the previous year. This development harbors great business potential for the global logistics industry, but it also has its pitfalls: B-to-C business requires shorter product life-cycles and faster delivery times.

"Logistics companies must be able to deliver products in lower quantities – and that at low prices," notes Dirk Friebel. "This, in turn, squeezes logistics providers' margins." Another factor is the local accessibility of suppliers: "Logistics companies should expand their domestic distribution networks in the respective countries in order to reach as many end-customers as possible," says Roland Berger expert Matthias Rückriegel. "Accordingly, they must invest in new distribution hubs and delivery fleets to secure a good share of the market."

Tapping into niche sectors with acquisitions

In contrast, certain industry niches that require a higher value add promise more profitable business. For example, pharmaceutical, chemical, gas, aerospace and consumer goods companies around the world are increasingly looking for logistics service providers that can take over specific sections of the supply chain. "Companies that can offer real value-add to the industry in these niches will establish a foothold and achieve high margins in tomorrow’s logistics market," explains Christian Schwarzmüller, Vice President, Barclays. "This is because companies are trying to expand their network of logistics service providers to avoid a precarious dependency on a few providers."

More international logistics companies are taking over specialized service providers in individual markets to tap into these logistics niches and extend their service portfolio with value-added services. However, corporate acquisitions in the last few years indicate that the value of most M&A transactions falls short of the $2 billion mark. "The days of major multi-billion dollar transactions are over in the logistics sector. Logistics providers are primarily taking over smaller, highly focused companies whose business prospects promise better margins," says Barclays Germany Co-CEO Alexander Doll.

This strategy pays off when it comes to tapping new markets and logistics segments. "This is why logistics providers will have to define the right market and portfolio strategy to grow profitably. When required they should commit to suitable financing solutions so that they can invest effectively in divisions with a promising future," Alexander Doll sums up the situation.

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